Photo/IllutrationYoshiyuki Tsukizaki, president of Japan Display Inc., at a news conference in Tokyo on April 12 (The Asahi Shimbun)

The government’s attempt to guide an industry in a desired direction often ends in failure. Now, we have yet another example of that general observation.

Japan should face up to the reality and draw lessons from it.

It has been announced that Japan Display Inc. (JDI), a manufacturer of liquid crystal display (LCD) panels, will become a subsidiary to an alliance of Chinese and Taiwanese companies as part of efforts to rehabilitate its business.

That means an earlier, government-led initiative for the realignment of the LCD industry, which resulted in massive investments from Innovation Network Corp. of Japan (INCJ), a government-backed fund, has failed to produce satisfactory results.

JDI was founded in 2012, by integrating the LCD segments of Hitachi Ltd., Sony Corp. and Toshiba Corp., with INCJ investing 200 billion yen ($1.8 billion) in the project. Officials reasoned that JDI would have a huge competitive edge if the technologies of the three companies were brought together, making the best use of the huge investment from INCJ.

INCJ remained involved in JDI, and in fiscal 2016 decided to provide an additional 75 billion yen in financial assistance.

INCJ initially stated that JDI represented a “landmark project” for the government-backed fund in its “mission to make global, long-term investments with a forceful impact to create an industry responsible for the national wealth of the next generation under the spirit of open innovation.”

JDI, however, never managed to shed its chronic propensity for deficits. It has produced scanty results in terms of “creating an industry.”

“The technologies that have been put to practical use and currently marketed by JDI have already been acquired and put to practical use by its rivals abroad,” industry minister Hiroshige Seko said following the latest announcement.

With regard to organic light-emitting diode (OLED) technology, JDI’s pride and joy, the company has only reached the stage of starting mass production.

There is no denying that the initial goal of industrial innovation, the rationale for getting the public sector involved, has failed.

JDI also has proved to be undependable in contributing to INCJ’s earnings.

INCJ recouped slightly more than 160 billion yen when JDI went public in 2014. However, the JDI shares still held by INCJ have since been devalued significantly.

INCJ should take steps to ensure it will recover its investment, including loans and other forms of assistance.

Overall, the project can hardly qualify as a justifiable investment by a government-backed fund.

Even accepting that the milieu surrounding the LCD industry is now quite different from what was envisioned originally, the public sector, which is generally incapable of coping with change in a timely manner, probably should not have had any input in the project.

The way things turned out is not just about the failure of an industrial policy. The assistance to JDI also bore the strong markings of a government “bailout.”

Takeo Hoshi, a professor of finance with Stanford University, has been studying the protracted doldrums of the Japanese economy. He and his colleagues noted the presence of “companies with poor productivity and profitability that should have withdrawn from the market but continue to do business only thanks to support from creditors or the government,” which he said suppresses the growth of healthy firms and hurts the entire economy.

It is acceptable for the government to provide assistance to businesses during a temporary market disarray. It is also essential for the government to work hard to stabilize employment across the entire economic spectrum.

That said, it should be taken to heart that no small loss is incurred when government intervention in the affairs of individual firms or industries exceeds that limit.

--The Asahi Shimbun, April 24